Gold futures drop by as much as $35 an ounce

By Myra P. Saefong

SAN FRANCISCO (MarketWatch) — Gold futures dropped by as much as $35 an ounce Thursday, tracking a broad commodities selloff and poised to break a seven-session winning streak as prices for crude oil fell below $90 a barrel and the U.S. dollar strengthened.
At last check, gold for August delivery — the most active futures contract — fell $28.40, or 1.8%,to $1,525.10 an ounce on the Comex division of the New York Mercantile Exchange.

Gold futures modestly pared their losses after the U.S. Commerce Department estimated that sales of new homes fell 2.1% in May.

Earlier, prices hit a low of $1,518.30. The contract hasn’t traded at levels this low since May 23. It had gained nearly $38 during a seven-session winning streak.
The benchmark July silver contract also sank, falling 3.8%, or $1.38, to $35.36.

“First and foremost, gold is reacting to the sharply higher U.S. dollar index,“ said Darin Newsom, a senior analyst at Telvent DTN. “Then there is the crude oil selloff.”

The International Energy Agency said Thursday that it will release 60 million barrels of oil into world markets in the coming month to counteract lost production in Libya.

“If we are getting 60 million barrels of new crude oil into the global market, then the inflationary story is really taking a beating today, thus gold indirectly gets hit, too,” said Richard Hastings, a macro strategist at Global Hunter Securities.

August crude fell $5.16, or 5.4%, to $90.25 a barrel on the New York Mercantile Exchange after tapping a low of $89.69.

“Commodities in general have been wanting to come down, and today may be the day,” said Newsom. “Safe-haven buying could emerge in gold soon. Even though the early loss is about $30, no chart damage has been done yet. The weaker DJIA could also provide support.

The dollar index, which measures the performance of the U.S. unit against a basket of six major currencies, rose to 75.699 from 74.791 late Wednesday. Strength in the greenback tends to lure investors away from gold. Read more about currencies action.

Gold investors also gauged comments by the Federal Reserve and lackluster results from a key Chinese manufacturing survey.

HSBC’s preliminary China manufacturing Purchasing Managers’ Index for June printed at 50.1, down from a PMI of 51.6 in May, and barely above the 50 level that separates contraction from expansion. See more on China manufacturing data.

Analysts said China’s inflation rate could peak in the 5%-6% range in the next few months, with deflationary concerns likely to come back in focus, and potentially setting the stage for Beijing to switch towards a neutral or even easy monetary-policy stance if global economic momentum cools.

Meanwhile, the Fed on Wednesday trimmed its view on economic growth and confirmed it will end its $600 billion bond-purchase program on June 30.

Myra Saefong is a MarketWatch reporter based in San Francisco. Chris Oliver is MarketWatch's Asia bureau chief, based in Hong Kong.